Investment Research Services
If you're going to make your own Roth IRA investment decisions, you need access to the most accurate and up-to-date information.
Below is a list of some of the best investment research services I've found. I use each of these services for making my own decisions regarding common stock purchases.
On top of providing excellent information, the majority of what these services offer is available free-of-charge!
The 'Key Statistics' section in the left sidebar of Yahoo! Finance provides figures such as Return-On-Equity (ROE), Debt-To-Equity, Total Debt, the Current Ratio, and Book Value.
Also located in the left sidebar is a hyperlink to the company's latest quarterly and annual financial statements.
Click on the link 'Cash Flow,' located under the header 'Financials.' Looking at the cash flow statement, you can quickly calculate the company's free cash flow by subtracting the 'Capital Expenditures' figure from the 'Total Cash Flow From Operating Activities' figure. This gives you quick insight into a company's ability to generate lots of cash on a consistent basis.
And, of course, generating lots of cash (i.e. profits) is the reason for operating a business.
To find out if a company has a history of consistently increasing dividend payouts, simply click on the '10yr' or 'Max' links located at the top of the stock chart. If the stock pays dividends, little blue tags labeled with a 'D' will appear along the graph in places where the company paid a dividend in the past.
Hover your mouse over the blue arrow, and it reveals the date of the dividend payment as well as the amount paid. Companies with a history of consistent and increasing dividend payouts over long periods of time typically have strong and steady core business operations.
If you scroll further down the page of a Google Finance stock quote screen, you'll find a link titled 'More ratios from Thomson Reuters.' This link provides you with valuable information such as the company's average 5-year Dividend Growth Rate, the current Dividend Payout Ratio, and the average 5-year Return-On-Equity.
These figures are valuable because a 5-year average paints a far more complete financial picture than a one-year snapshot.
Before calculating a stock's intrinsic value, you need to make some assumptions, and those assumptions should be as accurate as possible. A figure's 5-year average is usually more accurate than a one-year blip.
Value Line Investment Survey
Well, Value Line is the perfect illustration...
The Value Line Investment Survey is widely considered one of the best analytical stock research tools in existence, and most libraries receive a very costly subscription you can access for free!
For instance, my local library has a small cubicle which houses the latest releases from the Value Line Investment Survey in several three-ring binders. In the past decade, I have yet to encounter another person using or waiting to use this free resource.
An annual subscription to the print edition is $598, so reading it free at the library is one of the best kept secrets in the investment world.
What's so great about Value Line you ask?
The Value Line Investment Survey tracks over 1,700 publicly traded stocks, providing its readers with reliable and accurate long-term figures for earnings, dividends, return-on-equity, and just about every other relevant financial number you'll want to know.
While I love Yahoo! Finance and Google Finance, their figures aren't always reliable. And accurate financial figures are a must!
Moreover, Value Line provides an independent investment research opinion on the health and future prospects of a company, providing insight into recent product releases, what to expect in the near term, and areas of strength and weakness investors should keep an eye on. This objective second set of eyes serves as yet another filter in deciding whether or not to make a long-term commitment to a company's common stock.
I also strongly suggest visiting the Value Line website.
They have a number of complimentary investment research products, such as the Value Line Investment Survey Small and Mid-Cap Edition. While your local library is less likely to carry this publication, it might well be worth the purchase price if you're considering a long-term commitment to a small-cap company with little available analytic information.
The Motley Fool and The Motley Fool CAPS Community
But the most interesting feature of the site is The Motley Fool CAPS Community.
Joining the community is free, and members can make long- or short-term picks on whether or not a stock will "outperform" or "underperform" the S&P 500. The community's collective ratings combine to give each stock a star rating of 1 thru 5, with 5 being the most bullish and 1 being the most bearish.
The collective wisdom of the CAPS community can be quite beneficial as a supplement to your own investment research. 5-star CAPS stocks have been demonstrated to outperform the market by as much as 12.1%. During the same time frame, 1-star stocks underperformed the market by 11.4%. That's a big difference!
More importantly, members of the CAPS community can post snippets of commentary, revealing in their own words exactly why they think a stock will outperform or underperform the market. Such objective and unfiltered commentary from like-minded investors is worth its weight in gold when it comes to investigating a common stock purchase.
Even after performing hours of research, you might find out that you've overlooked a negative aspect (and in some cases, a fatal flaw) in a company's business operations.
Others in the CAPS community can help you uncover these nasty facts.
For instance, in late-2008, I took a strong interest in the long-term prospects of Rocky Mountain Chocolate Factory (RMCF). The stock was trading at a low price... The company was profitable... Return on equity was well above average... Debt was almost non-existent... The company paid a good dividend which it had a history of increasing...
In addition, the business was easy to understand. I like chocolate, and I buy chocolate.
And the chocolate business is extremely unlikely to become obsolete overnight, meaning long-term viability for the business was very realistic.
Everything seemed right. So why didn't I jump?
Several articles and community comments in The Motley Fool CAPS Community pointed out that RMCF's growth came almost entirely from opening new franchise locations.
Same store sales were down quarter-after-quarter, and the company itself had little interest in opening new locations itself... a far more profitable venture. Instead, RMCF wanted franchisees to take all the risk, sending a message (whether true or not) that the business wasn't as great as it looked at first glance.
Upon further examination, it looked like RMCF's earnings growth would stop and reverse course once it hit its ceiling on opening new store locations.
If that's the case, it's not the type of company I want to invest in. Would I have discovered this on my own without the help of The Motley Fool CAPS Community?
I'd like to think so, but maybe not.
Remember, pride goeth before the fall.
So don't hesitate to seek the opinions of others.
This story teaches us a valuable lesson. Investment research is just as much about "what NOT to invest in" as it is about "what to invest in."
Your standards for pulling the trigger on an investment commitment should be so high that you look for reasons NOT to invest. Then, when an investment manages to meet your standard, you can sleep well at night knowing you hold a fractional interest in a great company with great long-term prospects.
In this respect, The Motley Fool CAPS Community is just one more tool to help you separate the gold from the fool's gold. Use it!
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